Ciba-BASF merger good for shareholders

Ciba-BASF merger good for shareholders
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First Published: Mon, Sep 07 2009. 09 54 PM IST

Updated: Mon, Sep 07 2009. 09 54 PM IST
When BASF AG acquired Ciba Holding Inc. to become a leading player in the global specialty chemicals business, it had a ripple effect in India too. Both companies have listed Indian subsidiaries: BASF India Ltd and Ciba India Ltd. After the acquisition, BASF Holdings made an open offer to Ciba’s shareholders, which met with an unenthusiastic response. Compared with the 20% it offered to buy at Rs237 a share, it got only 2.1%, as shareholders expected a better price. They seem to have been proved right, as their firm will now be merged with BASF, becoming part of a much larger entity.
BASF AG is integrating Ciba’s businesses globally with its own operations, as it has to fulfil its aim of achieving €400 million (Rs2,796 crore) of synergies through this acquisition. It involves significant restructuring at Ciba’s global operations. In India, Ciba, Ciba’s subsidiary Diamond Dye-Chem Ltd and Ciba Research (India) Pvt. Ltd will be merged with BASF.
The merger ratio will be announced later. The market price of both companies is one factor. Based on Friday’s closing prices, the swap ratio works out to five shares of BASF for every six shares of Ciba. The Ciba price has run up about 7% on Monday.
Graphics: Sandeep / Bhatnagar / Mint
In a merger transaction, price is only one consideration and hence any surge in price may not mean much. The promoter stake in both companies is about 71%, which will remain at around the same level after the merger. Since the research company is an unlisted one, the promoter’s stake will go up to that extent.
The merged entity will become a large player in the Indian chemicals industry, with combined sales of about Rs2,000 crore and profit of Rs80 crore in FY09. Both companies have announced a voluntary retirement scheme (VRS) to lower their headcount. Initially, VRS may affect its financials though wage costs will get lowered eventually. BASF and Ciba operate in similar product segments catering to similar industries. They operate in both commodity and specialty chemicals segments, catering to diverse sectors such as textiles, leather, automobiles, agriculture, paper and pharmaceuticals.
They can thus rationalize operations across manufacturing, sales and administration. It will reduce operating costs, and make BASF a leaner organization and perhaps a more profitable one. Both companies have predicted 2009-10 to be another tough year for the chemicals industry. That may elongate the waiting period after which the benefits of the integration will reflect in BASF’s financials.
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First Published: Mon, Sep 07 2009. 09 54 PM IST